Title: Profitability and firm value: the impact of non-cash value flow recorded in the financial statements

Authors: Bambang Sutopo; Santoso Tri Hananto

Addresses: Universitas Sebelas Maret, Jl. Ir. Sutami 36A, Surakarta 57126, Indonesia ' Universitas Sebelas Maret, Jl. Ir. Sutami 36A, Surakarta 57126, Indonesia

Abstract: This study examines whether non-cash value flow (NCVF) recorded in financial statements has an impact on the relationship between the profitability and the firm value. Using a sample covering 1,904 firm-year observations listed on the Indonesia Stock Exchange (IDX) for the 2013–2016 periods, the results of this study indicate that the impact of NCVF on the association between profitability and firm value for the high positive NCVF sub-sample is not significantly different from that for the low NCVF sub-sample. In addition, the impact of NCVF on the relationship between profitability and firm value for the high absolute negative NCVF sub-sample was significantly lower compared to that for low NCVF sub-sample. These results are not fully following the nature of NCVF which affects earnings and assets that can be normal (reflecting relatively higher quality) or either above normal or below normal (reflecting relatively lower quality) and which subsequently affect profitability (ROA) and firm value (Tobin's Q).

Keywords: profitability; return on assets; ROA; firm value; Tobin's Q; non-cash value flow; NCVF; Indonesia Stock Exchange; IDX.

DOI: 10.1504/IJEPEE.2019.104640

International Journal of Economic Policy in Emerging Economies, 2019 Vol.12 No.5, pp.490 - 502

Received: 03 Mar 2019
Accepted: 10 Jun 2019
Published online: 24 Jan 2020 *

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